How will Automation affect Jobs, Skills and Wages?

A new report predicts that by 2030, as many as 800 million jobs could be lost worldwide to automation. The study, compiled by the McKinsey Global Institute, says that advances in AI and roboticswill have a drastic effect on everyday working lives, comparable to the shift away from agricultural societies during the Industrial Revolution. In the US alone, between 39 and 73 million jobs stand to be automated — making up around a third of the total workforce.

But, the report also states that as in the past, technology will not be a purely destructive force. New jobs will be created; existing roles will be redefined; and workers will have the opportunity to switch careers.

Technology-driven automation is central to the process of increasing our living standards. That is because better “tools” allow us to produce more. It is only by producing more that workers can earn more and companies can lower prices, both of which increase living standards.

There are two kinds of technologically driven productivity. The first is when technology replaces workers. The second is when technology makes workers more productive. Both are good, and both boost productivity and per-capita GDP.

The employment impacts of automation in a particular industry depend on the nature of the industry. Automation lets organizations lower costs and therefore prices. In industries where lower prices don’t lead to significantly more demand for a good or service, automation allows fewer workers to produce the same output. But in industries where lower prices spur more demand, automation allows the same number of workers to produce more output.

Automation has differing effects on occupations. Some (such as travel agents) have seen employment declines because of new technology. Others have seen gains, either from increases in standards of living (because more people can afford to hire childcare workers), or because a new technology creates new occupations directly (computer scientists).

Automation itself does not lead to net job gain. Some jobs will be created making new tools, but the use of new tools will always eliminate more jobs. No organization invests in automation if the net-present value costs are greater than savings. In other words, if it takes 100 hours of work to build a machine that saves 90 hours of work, no company will adopt it.

Automation does not lead to net job loss, either. Even if automation eliminates some of the jobs in a particular industry, it does not reduce jobs in the overall economy. The reason is that no organization automates unless it saves money, and those savings get passed on to consumers, who in turn use those savings to buy something else. That spending creates jobs in other parts of the economy.

Automation increases net welfare even if “good” jobs are automated. Some argue that automation should only be for the 3Ds: dumb, dirty, and dangerous jobs. Clearly, automating undesirable jobs is a double win, because there are fewer bad jobs and overall GDP increases. But automating “good” jobs also is a good thing, because it leads to increases in GDP; the original output still exists, but workers are redeployed to produce new and additional output, so society reaps the benefits of more plentiful goods and services.

The rate of automation will never exceed the rate of compensating job creation. Many fear that the pace of change is increasing too fast, even though there is no evidence that the current or expected rate of technological change and productivity will be higher than historical rates. But even if the rate of automation does increase, there is no reason to expect that concurrent job creation (from lower prices and higher wages) will not keep up, especially if macroeconomic policy is calibrated appropriately.

So considering the above points, we find both upsides and downsides, automation can bring to the system. Sustainable growth is what we are working towards in all my ventures. Please take note of both sides before concluding anything.